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Just as you may be put out of business by a large legal judgment against you if you don't have adequate liability coverage, the same thing could happen because of a prolonged hospital stay or medical treatment if you lack sufficient health insurance coverage.
Sources of coverage. Look in "your own backyard." Before you run out to purchase your own health policy, make sure that you haven't overlooked alternatives that may be close at hand: coverage under your working spouse's employer-provided plan, or your former employer's COBRA coverage. If you can get coverage under your spouse's employer-provided plan through a larger payroll deduction from his or her paycheck, this probably will be your least expensive option.
Continuing medical coverage (known as COBRA coverage) that a former employer must, by federal law, make available to you for a period of time following your separation from employment may be more expensive than some policies available through other sources. But COBRA coverage definitely makes sense in these two instances: if you are uninsurable because of poor health, or if your coverage is almost expired and you don't know if you can get new coverage before the old coverage lapses. In most cases COBRA coverage lasts for 18 months after your separation from employment.
Professional, business and trade associations. You may belong to an association that offers health insurance. If so, take a look at the coverage available. It may or may not be a good deal. And if an association that you don't belong to offers good coverage at a reasonable premium, it may be reason enough to join!
HMOs. Health maintenance organizations (HMOs) are managed care organizations that you may be eligible to join. They aim to offer quality health care services at affordable premiums, but to do so they markedly decrease your choice of doctors and hospitals that you can use. Because HMOs typically require rather minimal payments (such as $10.00) for preventative and routine care provided at a member doctor's office, the HMO co-payment provisions are usually not very significant other than for "out of the ordinary" medical expenses or procedures.
PPOs. Preferred provider organizations (PPOs) are also managed care organizations. If you are a member, you can go to any doctor or hospital for any covered care, but the amount that the PPO will reimburse you will be lower if you choose a doctor or hospital that is not on the PPO's list of preferred providers.
Individual health insurance policy. Whether, and at what cost, you can obtain an individual health policy from an insurance company will depend on your age, health, lifestyle and family history. More flexibility may be available with the purchase of your own policy. You may be able to significantly lower your premiums if you will agree to a high annual deductible amount, such as $1,000 or $2,000 per person. Although the prospect of having to pay the first $1,000 or $2,000 of medical expenses before even qualifying for any coverage may seem unreasonable, it may be a sensible alternative. If you could weather the worst-case situation of having to pay the full deductible amount for all the covered individuals in your family within the year, this high deductible may be for you. At a significantly lower premium than a comparable policy with lower deductibles, the high deductible plan would give you the assurance of coverage for catastrophic health care costs that could otherwise cause you to lose your house and business.
Archer Medical Savings Accounts (MSAs). Under a pilot program that began in 1997, employees of small businesses (50 or fewer employees) and self-employed individuals can set up MSAs to pay health care expenses, provided the accounts are used in connection with high-deductible health insurance. Taxpayers who qualify for this pilot program (which will be limited on a first-come, first-served basis to the first 750,000 applicants for tax years beginning after December 31, 1996, through the end of 2005), may receive significant income tax advantages.
The MSA program rules define "high-deductible health plan" as one that has the following deductibles and out-of-pocket limits (in 2004):
- For individual coverage: The minimum deductible is $1,700, the maximum deductible is $2,600, and the maximum out-of-pocket limit is $3,450.
- For family coverage: The minimum deductible is $3,450, the maximum deductible is $5,150, and the maximum out-of-pocket limit is $6,300.
These amounts will periodically be indexed for inflation.
Contributions to MSAs made by self-employed individuals will be deductible in computing their adjusted gross income. Money in the MSA account can then be used to pay for qualified medical expenses, including the insurance deductible and copayments. Any money left over at the end of the year can be saved for future years.
Comparing policies. Besides the differences in premiums to be paid and yearly deductibles to be met, there are many ways that health insurance policies can differ. You should consider the following factors when comparing policies:
- Maximum lifetime benefit. The higher, the better. Some policies have unlimited benefits, while others provide limits (such as $250,000, $500,000 or $1,000,000) on the total amount of benefits that will be paid in a lifetime.
- Co-payment. The co-payment amount is the percentage of covered expenses that you must pay. If the policy provides for a 10 percent co-payment, you will be reimbursed for 90 percent of your covered expenses; if it provides for a 20 percent co-payment, you will be reimbursed for 80 percent of your covered expenses.
- Limitation on yearly per-person outlay. This represents the maximum amount of unreimbursed expenses (such as $2,000) that you would have to pay for each covered individual in any one year. It includes the amount of your deductible, and a portion of the co-payments made by you during the year.
- Coverage for type of care. Policies often apply different co-payment amounts and length-of-stay limits to the following: hospital rooms and doctor fees, surgical procedures, dental procedures, mental health services and out-patient care.
Tax treatment of premiums payments. Corporations generally can deduct the full cost of health insurance premiums paid with respect to their employees. Beginning in 2003, self-employed individuals, partners, and S corporation shareholders, can also fully deduct their health insurance premiums.
Health Insurance
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